There were more U.S. bankruptcy filings in 2020 than in any year since the global financial crisis, but the number of bankruptcy filings in the first half of 2021 returned closer to historical levels, according to a new report from Cornerstone Research. The report, entitled “Trends in Large Corporate Bankruptcy and Financial Distress: Midyear 2021 Update,” looks at bankruptcy filings involving private and public companies with assets over $100 million. The report can be found here, and Cornerstone Research’s August 25, 2021 press release about the report can be found here.

 

A total of 155 companies filed for bankruptcy in 2020 (153 under Chapter 11 and 2 under Chapter 7), which is the second-highest number of bankruptcy filings since 2005, behind only the 161 bankruptcy filings in 2009. The 155 bankruptcy filings in 2020 represented roughly 96% increase over the 2005-2020 average annual number of bankruptcy filings (79).

 

The government stay-at-home orders clearly had an impact on the number of 2020 filings. Of the 155 bankruptcy filings. 104 were filed in Q2 and Q3 2020, when the government shutdown orders first kicked in. By contrast, there were only 17 bankruptcy filings in Q4. Pandemic-driven bankruptcies peaked in July 2020 when 24 companies filed for bankruptcy, the second-highest number of bankruptcies in a single month during the period 2005-2020, exceeding only the 25 monthly filings in March 2009.

 

There were 60 “mega-bankruptcies” in 2020 (involving companies with over $1 billion in assets), but more than half (31) of the 2020 mega-bankruptcies were filed in Q2 2020. The 60 mega-bankruptcies in the 2020 was the highest annual number of mega-bankruptcies during the period 2005-2020.

 

In the first six months of 2021, 43 companies filed for bankruptcy, less than half of 89 companies that filed for bankruptcies in the first half of 2020, but slightly above the 2005-2020 half-year average of 39 filings. Bankruptcy filings by private companies constituted 79% of first half 2021 bankruptcies involved private companies, substantially higher than the 2005-2020 annual average of 37%.  Only nine mega-bankruptcies were filed in the first half of 2021, comparable to the 2005-2020 half-year average of 11.

 

As far as the industries that experienced the most bankruptcies, the two most active sectors in 2020 were Mining, Oil and Gas (which experienced 44 bankruptcies in 2020) and the Retail Trade industry (which had 31 bankruptcies in 2020). These two sectors accounted for 48% of all 2020 bankruptcy filings.

 

The most active sector for bankruptcies in the first six months of 2021 was the Finance, Insurance and Real Estate sector, which had nine bankruptcies in 1H21, compared to ten in that sector in all of 2020. The nine first half 2021 bankruptcies in this sector included five filed by retail investors, “driven by the continued struggle of many traditional shopping centers and hotels in the wake of the pandemic.”

 

The largest bankruptcy filing in 2020 was The Hertz Corporation, which had assets of $25.84 billion. Of the 20 largest bankruptcies by asset size in 2020, 10 were filed by companies in the Mining, Oil, and Gas industry. Three large retailers, Ascena (parent company of Ann Taylor and Lane Bryant, with assets of $13.69 billion), J.C. Penny (assets of $7.99 billion), and Nieman Marcus (assets of $7.55 billion).

 

Bankruptcy filings in the first half of 2020 were “comparatively smaller.” The largest bankruptcy by assets in the first six months of 2021 was Seadrill Limited, with assets of $4.58 billion, an offshore drilling contractor that was hit by declining energy prices in 2020.

 

As is typically the case, Delaware was the most common venue for bankruptcy filings, with 57 of the 155 bankruptcy filings in 2020 (37%) and 17 of the 43 bankruptcy filings in (40%) in the first half of 2021. The second-largest venue was the Southern District of Texas, which for the first time in 2020 accounted for more than 25% of bankruptcies filed. In the first six months of 2021, 28% of all bankruptcies were filed in the Southern District of Texas. Of the 47 bankruptcies filed in the Southern District of Texas in 2020, 32 (68%) were by companies in the Mining, Oil, and Gas industry. Only three Mining, Oil, and Gas companies filed for bankruptcy in the Southern District of Texas in the first half of 2021.

 

Though the number of bankruptcies decline in the first half of 2021 relative to 2020, reasons for concern remain. The press release that accompanies the report states that “Despite the decline in the number of large bankruptcies in the first half of 2021, future increases in borrowing costs could be especially concerning for companies that borrowed heavily to weather the COVID-19 pandemic.”